This was originally sent to subscribers of TheStreet.com Stocks Under $10 on April 5 at 12:01 p.m. EDT. For more information on this newsletter, click here. We are constantly on the lookout for nontraditional investment ideas, especially ones that we call "story stocks." These are stocks whose share-price potential depends more on news and product announcements than earnings and cash flow results over the coming year or two. Altair Nanotechnologies ( ALTI) fits this description, and we are adding it to our watch list of stocks that carry more risk than many of the other types of plays we consider. In simplest terms, nanotechnology is the process of fabricating particles until they are the size of a molecule, or smaller. Using particles of this size, companies like Altair can build stronger materials that are more resistant to wear. In addition, the molecules are easier to manipulate and can be crafted into different forms and used in disparate sectors like medicine and batteries. Altair Nanotechnologies develops applications for high-growth markets -- including advanced battery technology -- through its two segments, life sciences and performance materials. In life sciences, Altair's focus is on drug delivery. The company is working on a pill-coating application that advances the sustained release of medications. In performance materials, Altair is concentrating on batteries designed to be used in everything from electric cars to iPods. Shares were recently trading at $3.55, and we believe risk-tolerant investors with long-term outlooks should consider taking a speculative position as the flow of information regarding Altair's new products picks up. With the growth in consumer electronics products fueling technology-related stocks, investors are hungry for pure plays on advanced battery technology that powers devices longer between recharging. In fact, every portable electronic gadget, cell phone and hybrid electric vehicle (HEV) could benefit from advanced battery technology. In February 2005, Altair announced a breakthrough in lithium ion electrode materials. Its technology enables batteries powering consumer electronic devices to last nearly three times longer than current lithium ion batteries. Altair is taking the technology a step further by introducing a nanostructured lithium titanate spinel anode, which further improves the batteries' life cycles.
Altair's battery advances offer safer high-performance batteries with greater power density and life-cycle properties than conventional NiMH, or nickel metal hydride, batteries and lithium ion cells. In addition, the company's technology gives batteries a fivefold increase in usable life over conventional lithium ion batteries and more than 30 times the number of charge/discharge cycles of current NiMH cells. During recent tests on battery-cell applications for HEVs, cells using Altair's lithium titanate electrode materials demonstrated a usable state-of-charge range -- the amount of time a battery can be used before requiring a recharge -- two times the charge range offered by conventional NiMH cells. Furthermore, these results support the feasibility of a lithium ion battery pack half the size of batteries currently used in HEV applications. This would represent a significant reduction in weight and a huge opportunity for the commercialization of HEVs. On the consumer electronics side, devices such as cell phones and iPods using batteries derived from Altair's patented nanotechnology would be lighter and run longer. Additionally, end users would benefit from shorter charge times compared to devices running on existing commercial battery technologies. Altair's innovations should spur strong demand when they become available on a mass scale, but there is competition in the market for next-generation battery technology. Founded in 2001, privately held A123 Systems is developing lithium ion batteries similar to Altair's offerings. A123 appears to have a slight edge on Altair in that it was first to address the three major factors affecting battery performance: power, safety and life span. Even so, we believe the market for next-generation battery solutions is large enough to support products from multiple vendors. Demand for better battery technology should continue to be driven by technological innovation that makes consumers increasingly dependent on portable electronic devices. And Altair's technology makes the company a leading candidate to generate media attention in the coming quarters.
In addition to Altair's battery business, the company's nanotechnology work in developing coating materials for medicines and implants and materials for dental applications is a plus for the stock. While not an overly sexy business on the surface, this segment has the potential to one day generate lucrative license revenue from pharmaceutical companies. Altair lost $8 million from continuing operations in the 12 months ended in September, and will most likely continue to lose money through 2008 as it spends aggressively on research and development and builds its product pipeline. Even with a history of losses, Altair currently garners an enterprise value of $191.4 million. (Enterprise value is the total of a company's market capitalization and net debt, or total debt less cash on hand. It is a widely used metric on Wall Street, and represents the market value of a company as a potential acquirer would compute it.) Altair is not forecast, by the single analyst who covers it, to generate significant revenue until at least 2008, when it's estimated to have sales of $42 million. Still, this does not guarantee profitability. For 2006, the company, according to the analyst, is forecast to sustain a net loss of $2 million, or 4 cents a share, down from a loss of $2.8 million, or 17 cents a share, in 2005. Meanwhile, we are not concerned about liquidity. The company has $23.8 million in net cash, which should be enough for more than three years of operations at the current cash burn rate of about $6.5 million per year. Net cash is cash left over after paying down all debt. In addition, Altair should find easy access to capital through the equity markets, thanks to strong demand for nanotechnology stocks and Wall Street's ability to generate investor interest in promising financing deals.